Thomas R. Wotruba and Michael L. Thurlow

Sales Force Participationin Quota Setting andSales Forecasting

Sales managers report on the extent and accuracy offorecasting by their sales forces.

ACOMPANY'S outside sales force is poten-tially one of its best sources of market and

sales forecasting information, especially underunique economic conditions which make histori-cal data unreliable. Yet many sales managers donot use inputs from their salespeople for fore-casting sales or establishing performance goals.Those who do solicit such information may haveto modify these inputs up or down depending onsuch factors as the abilities of the men or womencomprising the sales force, their knowledge ofcompany plans, and potential deliberate distor-tion of data because the salespeople feel that theirestimates will be used later in setting their quotasor in determining their level of pay. Thus, askinga sales force for future sales estimates and usingthese inputs in any fashion requires a degree ofcaution and a concern for just how to interpretthat information.

This article reports the results of a study de-signed to investigate the extent of sales force par-ticipation in sales forecasting and quota setting indifferent kinds and sizes of companies. It alsoexamines the experiences of sales managers in in-terpreting and using such data.

Current Status

Research conducted during the past decadeshows that many firms use a forecast constructedfrom the inputs of the entire sales force as a partof their sales forecasting procedure. For example.

Journal of Marketing, Vol. 40 (April 1976), pp. 11-16.

the National Industrial Conference Board re-ported that the sales force composite was givenheavy or moderate reliance by well over half of allmanufacturers and service companies studied.'

One reason often cited for having salespeopleparticipate in forecasting is to take advantage ofthe insight of those company representatives whoare closest to the customer. Another is thatgreater commitment by salespeople to the fore-cast might result if they believed they had a voicein formulating it. For example, quotas based onthese forecast inputs might be more acceptable tothe sales force.

Newton's comprehensive study of the salesmanagement practices of over one thousand com-panies found, however, that while more than 70%of the responding firms used quotas for eachsalesperson, a relatively small proportion—lessthan 10%—based these quotas on sales force es-timates.^

An important factor affecting the determinationof quotas is the type of compensation plan in ef-fect for the sales force. If sales force compensationis tied to quota attainment, sales managers maybe reluctant to let their salespeople participate inquota determination. Relationships between the

1. Stanley J. PoKempner and Earl L Baily, Saks Fore-casting Practices, Experiences in Marketing Management,No. 25 (New York: National Industrial Conference Board,1970). p. 10.

2. Derek A. Newton, Sales Force Performance and Turnover(Cambridge, Mass.: Marketing Science Institute. 1973), p.145.

11

12 Journal of Marketing, April 1976

type of comp)ensation plan and the extent of salesforce participation in sales forecasting and quotasetting have not been clearly documented, how-ever. Nor have any studies investigated the direc-tion and degree of error in the quota estimates ofsalespeople. The present study sheds some lighton these areas.

The Study

Variables Investigated

Five major variables were singled out for study:

A. Extent of Sales Force Participation in Fore-casting. In this study, sales forecasting is defined asestimating future sales for a geographic area,product line, or list of accounts. Participation inforecasting is the existence of a company policy orpractice of obtaining a sales estimate from sales-people at the sales manager's request. Extent ofparticipation is defined as the degree of formaliza-tion of these policies or practices and iscategorized into three groups: formal policy, in-formal policy, or no policy regarding sales forceparticipation in the forecasting process.

B. Participation of Salespeople in Quota Setting.A quota is defined as a revenue, profit, or unitvolume goal assigned to a salesperson. Participa-tion in quota setting is the submission to the salesmanager of an independent estimate of what thesalesperson believes his quota level should be.

C. Type of Compensation Plan for Salespeople.Four types of compensation plans were identifiedfor sepau-ate analysis:

1. Straight salary—fixed payments for a certainperiod of time.

2. Straight commission—payment amount var-ies in proportion to some type of perfor-mance, usually the amount of revenue ob-tained.

3. Commission with guaranteed draw—commissions that are guaranteed up to someminimum level.

4. Salary combinations—includes three majorvariations: salary plus commission, salaryplus bonus, and salary plus bonus pluscommission.

D. Direction of Error of Sales Force Quota Esti-mates. This variable reflects the judgment of the

• ABOUT THE AUTHORS.

Thomas R. Wotruba is professor of marketing at SanDiego State University, California.Michael L. Thurlow is employed in the U.S. MarketingDivision, Del Monte Corporation, San Francisco.

sales manager regarding whether the quota esti-mates of his salespeople are too high or too low.

E. Degree of Error of Sales Force Quota Esti-mates. This variable reflects the sales manager'sjudgment regarding to what extent the estimatesof his salespeople are too high or too low.

Data for variables D and E were also obtainedfrom sales managers who do not ask their sales-people for quota estimates; in these Ccises thesales managers were requested to give their opin-ions about the direction and degree of error thatwould occur if their salespeople were asked forestimates.

Hypotheses

Although many relationships among these fivevariables could be investigated, this study focusedon the following six:

VariablesCompared

A:B

A:C

B:C

C:D

Hypothesis Number and Statement

The extent of sales force participationin the quota-setting process will begreater in firms where salespeopleparticipate in the forecasting process.The extent of sales force participationin the forecasting process will differdepending on the type of compensa-tion plan in effect.The extent of sales force participationin the quota-setting process will dif-fer depending on the type of compen-sation plan in effect.

Whether the quota estimates of sales-people are judged to be too high ortoo low by their managers will de-pend on the type of compensationplan in effect.

The degree of error in the quota esti-mates of salespeople, as judged bytheir sales managers, will depend onthe type of compensation plan in ef-fect.

The degree of error in the quota esti-mates of salespeople will be greaterwhen their quota estimates are toolow than when their estimates are toohigh.

Each of these hypotheses was reformulated intoits null counterpart so that it could be testedstatistically using chi-square analysis. In addition,a number of secondary variables such as type andsize of firm were investigated. These will be in-troduced and discussed in the following section.

C:E

D:E

Sales Force Participation 13

Data Collection

The Sales and Marketing Executives-International chapters in San Francisco and LosAngeles granted permission to poll their mem-bers, and a cover letter from each chapter s presi-dent accompanied each questionnaire mailed tothe members of that chapter in early 1974. Themembership directories of both chapters were re-viewed and edited before the survey was un-dertaken. Retired, academic, and consultantmembers were not polled. In addition, memberswho could not be identified as sales or marketingmanagers, general managers, or presidents werenot included in the sample. The remaining 559names were mailed a questionnaire.

Two hundred and two usable responses werereceived in postage-paid return envelopes pro-vided with the questionnaire. This is an effectiveresponse rate of 36%. Table 1 reports some de-scriptive characteristics of the respondents.

TABLE 1CHARACTERISTICS OF RESPONDENT COMPANIES

Characteristic

Number of salespeople1-910-1920-4950-99100 or more

Sales volumeUnder $5 million$6 to $19 million$20 to $49 million$50 million or more

Dominant customer typeManufacturersConsumersServiceWholesalers/retailersMultipleOther

Percentageof Respondents

(N = 202)

1515201040

100

22241242

100

32151033

82

100

Results

Although the data suggested a number of rela-tionships, only one of the six hypotheses was sup-ported by the chi-square analysis. The study alsorevealed several other findings with regard tosales force participation in forecasting and the useof sales quotas.

Hypotheses

Hypothesis 1: Participation in Forecasting andQuota Setting. A total of 86% of the respondentfirms reported a policy of sales force participationin sales forecasting, with 56% having a formalpolicy and 30% indicating an informal policy.Quotas for salespeople were used by 74% of thesefirms; in the firms using quotas, 56% request thattheir salespeople submit an estimate of what theybelieve their quota level should be.

The first hypothesis, that quota participationrelates to forecast participation, is supportedbased on chi-square analysis of the data shown inTable 2. Firms with formal policies on sales forceparticipation in forecasting are much more likelyto ask salespeople to submit quota estimates thanare firms with informal policies on participationin forecasting. Companies that do not involvetheir sales force in forecasting are the least likelyto ask salespeople to submit an independent es-timate of their quota level.

Hypothesis 2: Participation in Forecasting andCompensation Plan. Straight-salsiry compensationplans were used by 21% of the responding firms,while combination plans involving salary pluscommission or bonus or both were employed by52%. Commission with some portion guaranteedin a drawing account was used in 10% of the re-sponding firms, and the remaining 17% employedstraight-commission sales forces.

The data in Table 2 used to test hypothesis 2show that it cannot be supported at the .05 level.The data do suggest a mild relationship betweenforecasting participation and type of compensa-tion plan, however, since the chi-square valuecould occur by chance only about 10% of the timeunder conditions of no relationship between thesevariables. There appears to be a tendency for salesforces working under either straight salary orstraight commission to participate more thanother sales forces in the forecasting process.

Hypothesis 3: Participation in Quota Setting andCompensation Plan. The hypothesis that salesforce participation in quota setting depends onthe type of compensation plan in effect cannot besupported by the results shown in Table 2, sincethe probability of these results occurring bychance under conditions of independence isgreater than .05.

However, a considerably smaller proportion ofsalary-combination sales forces submit quota es-timates than the corresponding proportion undereach other compensation plan. If compensationplans are compared two at a time rather than allat once, two of these pairwise comparisons are

14 Journal of Marketing, April 1976

Hypotheses

1

2

3

4

5

6

TABLE 2

RELATIONSHIPS AMONG VARIABLES IN

Variables

Submission of aquota estimate

YesNo

Participation inforecasting

FormalInformalNone

Submission of aquota estimate

YesNo

Direction of errorin quota estimate

UnderestimateOverestimate

Degree of errorin quota estimate

10% or lessMore than 10%

Degree of errorin quota estimate

10% or lessMore than 10%

THE HYPOTHESES

Participation in Forecasting

Formal Informal None73%27

100%

47%53

100%

CompensationSalary

Straight Combi-Salary nation

64%2412

100%

StraightSalary

71%29

100%

StraightSalary

60%40

100%

StraightSalary

80%20

100%

45%3817

100%

SalaryCombi-nation

48%52

100%

SalaryCombi-nation

447f56

100%

SalaryCombi-nation

78%22

100%

5%95

100%

Plan

Commissionwith Draw

61%1722

100%

Commissionwith Draw

62%38

100%

Commissionwith Draw

40%60

100%

Commissionwith Draw

80%20

100%

Direction of Error in Quota Estimate

Underestimate Overestimate19%21

100%

73%27

100%

TESTED

StraightCommission

72%22

6100%

StraightCommission

68%32

100%

StraightCommission

50%50

100%

StraightCommission

67%33

100%

Total56%3014

100%

Total56%44

100%

Total48%52

100%

Total76%24

100%

Chi-SquareValue andProbability

33.02p < .001

10.08p < .10

6.04p < .15

1.41p < .75

0.81p < .90

0.27p < .70

statistically significant at the .05 level (thecommission-with-draw plan is not significantlydifferent from the salary-combination planprimarily because its sample size is small), andthese results would provide support for hypothe-sis 3.

Hypothesis 4: Direction of Quota Estimate Errorand Compensation Plan. The fourth hypothesis,that the type of compensation plan in effect will

influence the direction of the sales force's quotaestimate error, cannot be supported as shown bythe results in Table 2. It appears that a salesmanager's judgment of whether his salespeoplewill overestimate or underestimate is not relatedto the type of compensation they receive. In fact,the proportions of salespeople who overestimateversus those who underestimate in the eyes oftheir managers are nearly equal regardless of the

Sales Force Participation 15

type of compensation plan under which theywork.

Hypothesis 5: Degree of Quota Estimate Errorand Compensation Plan. Hypothesis 5 states thatthe degree of error in sales force quota estimates,as determined by their managers' judgment, willdepend on the type of compensation plan in ef-fect. As shown by the data in Table 2, this hy-pothesis cannot be supported because the chi-square value is very small. Overall, the degree oferror is 10% or less in three-quarters of the salesforces whose salespeople do participate in settingquotas, and the same general pattern exists re-gardless of the type of compensation plan.

Hypothesis 6: Direction versus Degree of QuotaEstimate Error. The final hypothesis, that the de-gree of error in sales force quota estimates will begreater when salespeople underestimate thanwhen they overestimate their quotas, cannot besupported as measured in this study. As Table 2shows, in approximately three-quarters of thesales forces the error is 10% or less regardless ofwhether the direction of error is over- or un-derestimation.

Other Findings regarding Sales ForceParticipation in Forecasting

Respondents were asked whether they agreedor disagreed with a number of statements regard-ing sales force participation in forecasting. Thesestatements were developed based on assumptionsand beliefs often expressed in textbooks and bysales managers regarding the nature and conse-quences of sales force participation in forecasting.Each respondent could agree with any number ofthe statements. The results are shown in Table 3.

Some statistically significant relationships (atthe .05 level) were found when the responses fromthese statements were cross-tabulated with othervariables in the study:

1. Those who thought their salespeople forecastlow to earn more money had a significantlylower incidence of formalized policies forsales force participation in the forecastingprocess than those who did not agree withthe statement (22% versus 57%, respec-tively).

2. Those who agreed that their salespeopleforecast just about right were much morelikely to have a formalized forecasting par-ticipation process than those who did notagree with this statement (67% versus 48%).

3. Managers of salespeople working undercommission-only plans were more likely toagree that their personnel forecast high due

TABLE 3

EXTENT OF SALES MANAGERS' AGREEMENT WITH STATE-

MENTS CONCERNING SALES FORCE PARTICIPATIONIN FORECASTING

Percent ofRespondents

AgreeingStatement

5 My salespeople typically forecast lowso they can earn more money.

20 In general, my salespeople are inac-curate forecasters because they lackthe information about the company'splans needed to accurately estimatetheir future sales.

24 In general, my salespeople forecasthigh because their optimism out-weighs their business judgment.

16 In general, my salespeople are inac-curate forecasters because they lackthe necessary insight into the eco-nomic factors that impact their cus-tomers' need for our products.

38 In general, my salespeople forecastjust about right.

to overoptimism than were managers usinga salary-only plan for their sales force. Spe-cifically, 38% of the respondents with acommission-only plan agreed with thisstatement, whereas the corresponding per-centages for commission with draw, salarycombination, and straight salary were 35,21, and 14, respectively.

Other Findings regarding Quotas

Salespeople in 74% of the responding firmswork under a quota plan of some kind. The pres-ence of a quota plan was not found to be as-sociated with the type of customer or marketserved, but it was related to the number of sales-people in the respondent's firm as well as to thesize of the company as measured by sales volume.Quotas are least likely to occur in smaller firmsand most likely to occur in larger firms.

The base of the quota plan was sales volumealone in 48% of the participating companies.Another 19% used some measure of profitability,such as gross margin or profit contribution, as atleast part of the quota base. An additional 13% ofthe quota plans were based solely on unit volume,while the remaining 20% used both sales volumeand unit volume in some combination. No sig-nificant associations were found between any ofthe other variables studied and the base of thequota plan.

As mentioned in the discussion of hypothesis 1,56% of the respondents using quotas requested

16 Journal of Marketing, April 1976

quota estimates from their sales force, and thedata in Table 2 represent answers from this groupof respondents. But the 44% of the respondentsusing quotas who do not ask for quota estimateswere requested to give their opinion of what theybelieved would happen if they did ask for suchestimates. Table 4 presents a comparison of theiranswers with the answers from managers who doask for quota estimates from their sales force.

TABLE 4RESPONSES ON DIRECTION AND DEGREE OF ERRORIN OuoTA ESTIMATES BY MANAGERS WHO ASK FOR

ESTIMATES VS. MANAGERS WHO DO NOT

Direction andDegree of

Error

DirectionUnderestimateOverestimate

Degree10% or lessMore than 10%

Experience ofManagers Who

Do Ask forQuota

Estimates

48%52

100%

77%23

100%

Opinion ofManagers WhoDo Not Ask for

OuotaEstimates

67%33

100%

59%41

100%

Note: Probability from chi-square test < .02 on each com-parison.

On each of the two comparisons—direction oferror and degree of error—a larger proportion ofmanagers who do not ask for estimates expect anunderestimation as well as a higher degree oferror than the corresponding proportion of mana-gers who do ask for estimates. The differences inboth these compairisons are significant beyond the.02 probability level. To test whether these differ-ences could possibly be reflecting other relation-ships, the submission of quota estimates wascross-tabulated with each of the following: base ofquota, number of salespeople in the company,dominant customer type, and company sales vol-ume (and, of course, type of compensation planas discussed in hypothesis 3). Chi-square testsshowed no significant relationships between thesubmission of quota estimates and any of thesevariables.

Conclusions and Implications

This study sought to determine the extent ofsales force participation in sales forecasting andquota setting, the relationships between such par-ticipation and company characteristics such assize of firm and type of sales compensation plan,and the extent of accuracy or error in the result-

ing estimates. Salespeople were asked to submit asales forecast estimate in the vast majority—86%—of the firms in this study. This rate of par-ticipation was essentially the same among differ-ent types of companies and among sales forcesunder various compensation plans. Thus, partici-pation was not limited to markets of certain cus-tomer types, to pcirticular compensation plans, orto selected company sizes. Sales force participa-tion in sales forecasting is evidently practiced inmost types of selling situations.

More than one-third of the respondents re-ported that their salespeople forecast just aboutright. Inaccurate forecasts by salespeople were at-tributed to overoptimism by the salesperson, lackof information about his company's plans, andlack of economic knowledge and understanding asto how it affects his customers and territory, inthat order. Only one respondent in 20 reportedthat his salespeople forecast low to earn moremoney. There was a significant relationship be-tween the presence of formalized policies regard-ing forecasting pzirticipation by salespeople andthe accuracy of sales force forecasts. Thus, formalprocedures for guiding salespeople appear to aidthe accuracy of results, and those proceduresshould incorporate giving the salesperson infor-mation regarding company plans as well aseconomic data and interpretations pertinent toeach salesperson's market.

Quotas for salespeople were used in 74% of theresponding firms, and they were more likely to beused in larger companies than in smaller ones. Ofthe companies using quotas, 56% ask their sales-people to submit an estimate of what each thinkshis quota level should be. The extent of overesti-mation versus underestimation of quota levels inthese firms appears to be about equal, and thedegree of error in either direction is 10% or less inmore than three-quarters of the responding firms.Those managers who now use quotas but do notask for quota estimates from their salespeople be-lieve that their salespeople would, if asked, un-derestimate more often and be in error by agreater amount than what apparently takes placein similar firms in which salespeople are asked forquota estimates. Since participation in quota set-ting is often encouraged as a means of increasinga salesperson's involvement in his job, this evi-dence should prove encouraging to managers whohave been reluctant to ask their salespeople forquota estimates.

This study was supported in part by a grant from the SanDiego State University Foundation, and also by the Salesand Marketing Executives-International chapters in LosAngeles and San Francisco.